Zynga’s Earnings Are No Fun For Investors

Investors were not impressed with ZNGA's first quarter results. Here's why it's so tough for them to find growth.

   

It’s been a rocky ride since Zynga’s (NASDAQ:ZNGA) IPO in December 2011. The stock has seen a range of $7.97 to $15.91. And Zynga’s first-quarter report didn’t help. Investors were not impressed — so far in today’s trading, the stock is off 5.6%, to $8.89.

Zynga is the dominant player in social games for the Facebook platform. But it’s getting tougher to find growth. In Q1, sales increased 32%, to $329 million, and profits came to 6 cents a share, down from 11 cents in the same period a year ago.

The key for Zynga will be moving to mobile. But that’s far from easy. The market is still in its infancy, and monetization tends to be lower compared to desktop platforms. This explains why Pandora (NYSE:P) has had problems, as seen in its quarterly report.

But Zynga has the advantage of a cash hoard of $1.5 billion, which is already being used for dealmaking. The company recently shelled out $180 million for OMGPOP, the developer of the popular mobile game “Draw Something.”

Interestingly enough, Zynga’s performance may signal headwinds for the Facebook IPO. Investors have been unloading social stocks lately, including Groupon (NASDAQ:GRPN) and Pandora.

It’s also an ominous sign that Zynga isn’t getting much growth from Facebook. The social network posted a fairly weak first quarter as well.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/zyngas-earnings-are-no-fun-for-investors/.

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